The good news today is that the always innovative UK Bond Network has finally produced what we think is a real first. It’s latest deal is a publicly listed business using an alternative finance platform to raise growth capital via a debt issue – in this particular case a convertible which carries a decent interest rate and some upside equity option if things go right.
The box below gives more detail on the business in question – Venture Life. We can’t say we know much about the business but it seems to be in a promising part of the healthcare segment. What we can say is that its financials look half decent although it’s important to say that it isn’t profitable. Hopefully the newly acquired business will help the drive towards profitability and a cashflow positive position, but at the moment the listed business is burning through its cash. The table below gives you more detail on the AIM listed outfit.
The reason for the convertible issue – it’s called a convertible because one part of the structure allows the investor to convert the debt instrument into equity – is a takeover. Venture Life is buying Periproducts Limited for cash of £5.6m. This new addition to the group is a UK-based oral care products company with a range of premium products including mouthwashes, which are alcohol-free, and toothpastes. Periproducts recorded turnover and an operating profit of £2.8 million and £0.2 million respectively in the year ended 30 November 2015. On a cash and debt-free basis, the headline consideration represents a multiple of 1.4 times Periproducts' turnover for the year ended 30 November 2015. It’s worth noting that in the period between 2012 through to 2014 Periproducts made a loss. Net assets of the business amount to £1.7m.
To fund the purchase Venture is issuing 2.4m shares raising £1.7m. There’s also the aforementioned convertible bond issue which it hopes will raise up to £2.0 million, of which £1.5 million has been underwritten – it seems almost certain that at least £1.9min bonds will be issued.
And the bond itself? Here’s the main features:
The Convertible Bond will pay a coupon of between 7%-9%, with the exact rate being determined by participating bond investors through UK Bond Network's auction process
The Convertible Bond may be repaid by Venture Life at any time on or after 3 March 2018, with full repayment of the principal amount of the Convertible Bond due on 3 March 2019.
The Convertible Bonds accrue interest daily, payable in quarterly instalments by the Company.
converted into Ordinary Shares will represent a 25% premium to the Placing Price.
If the maximum amount of £2.0 million is raised by the Convertible Bond Issue, and each Bondholder were to convert his/her entire holding of Convertible Bonds into Ordinary Shares, then the Bondholders would be required to pay a conversion price per Ordinary Share of 87.5 pence
The second box below gives much more detail about the security of the loan.